S&P: Ratings Affirmed In European Cash Flow CLO Transaction St. Paul's CLO II Following Performance Review
Today's affirmations follow our assessment of the transaction's performance using data from the August 2016 trustee report and the application of our relevant criteria (see "Related Criteria").
We subjected the capital structure to a cash flow analysis to determine the break-even default rate (BDR) for each rated class at each rating level. The BDR represents our estimate of the maximum level of gross defaults, based on our stress assumptions, that a tranche can withstand and still fully repay the noteholders. In our analysis, we used the portfolio balance that we consider to be performing, the current weighted-average spread, and the weighted-average recovery rates calculated in line with our corporate collateralized debt obligation (CDO) criteria (see "Global Methodologies And Assumptions For Corporate Cash Flow And Synthetic CDOs," published on Aug. 8, 2016). We applied various cash flow stresses, using our standard default patterns, in conjunction with different interest rate stress scenarios.
Since our Feb. 13, 2014 effective date analysis, the aggregate collateral balance has increased (see "Transaction Update: St. Paul's CLO II Ltd."). In our view, this has increased the available credit enhancement for all of the rated classes of notes. We have also observed a small percentage increase in assets rated in the 'CCC' category ('CCC+', 'CCC', and 'CCC-'). There are no assets classified as defaulted.
We have observed that non-euro-denominated assets currently make up 6.6% of the aggregate collateral balance. A cross-currency swap agreement hedges these assets.
Taking into account the results of our credit and cash flow analysis and the application of our current counterparty criteria, we consider that the available credit enhancement for all classes of notes is commensurate with the currently assigned ratings (see "Counterparty Risk Framework Methodology And Assumptions," published on June 25, 2013). We have therefore affirmed our ratings on all classes of notes.
St. Paul's CLO II is a cash flow collateralized loan obligation (CLO) transaction that securitizes loans to primarily speculative-grade corporate firms. The transaction closed in July 2013 and is managed by Intermediate Capital Managers Ltd.